Pitfalls in ERP implementation

Investments in I.T. projects particularly in ERP is huge and return on investment is not clear. CEO of the company takes a decision to go ahead with ERP without doing any home work. Implementation partners of SAP, Oracle claim to implement ERP in 90 days flat. A closer scrutiny will reveal startling facts. Implementation has been done successfully in case of only 25% of those who have gone for ERP. In some cases, there is total failure. Companies where ERP has been implemented are back to square one and are doing almost everything in excel sheet. The loss to business is huge in terms of investment in hardware, software, networking infrastructure etc besides the cost of human resource deployed in implementation. Cost of maintenance of ERP is very high almost 18-22% of licensing cost. That means , if the licensing cost of ERP is say 1.5 crore, the cost of AMC shall be in the range of 27-33 lacs per annum which the company has to shell out irrespective of whether ERP is a failure or a success. Neither the implementation partners nor the clients come out openly and acknowledge the failure for fear of loss of prestige.

There is not one reason that can be attributed to the failure. There are several reasons of the failure. It is my view that failures must be analysed and brought to the notice of those who are potential customers of ERP so that they learn from the mistakes made in the past and do not repeat the same causing enormous loss to the company.

To start with, let me give you a simple example. You know that if there is pain in any part of your body, you go to the doctor. The doctor diagnoses the cause of pain in your body and suggests remedial measures by prescribing appropriate medicines with instructions on how to take the medicines. Carrying the prescription of the doctor, you then proceed to buy these medicines from a medical store. If you go to the medical store without consulting the doctor and buy a medicine which can relieve you of pain from the body, you are most likely to buy wrong medicine which will eventually harm the body rather than cure it. The point to note here is that you need to know what is it that is causing pain. Even the best medicine cannot cure you if the pain is not diagnosed properly. By the same logic, no matter how good an ERP product you buy, if it cannot address the pain area of your company it is of little use., it will prove to be a liability rather than an asset of the company. CEO of the company has to therefore hire a consultant who will help identify pain areas of the organization and prepare specification which will serve as a blue print to test the functionality fitment of ERP. It is quite possible that even the best ERP may fail to pass the test fully whereas a lesser known ERP product passes the test. The point I am trying to make here is that what is important is not how good an ERP product is , but whether the functionality of the product fits to your company’s specific requirement.

Coming back to the previous example, even if you buy correct medicine, it may not cure you if you don’t take it in the correct dose as prescribed by the doctor. In the same way, even if the right ERP is purchased, it can still fail if not implemented properly. ERP implementation may be done by the vendor himself or may be done by implementation partners of the vendor. Vendors of SAP, Oracle etc recommend certified implementation partners for implementation of their product. In a scenario like this, it is necessary to evaluate implementation partners separately on the basis of type of projects handled in the past, feedback of their existing clients preferably from similar industry, technical background of project team, domain knowledge etc. It is also important to know from existing sites how much time is spent in implementation. Even the financial health of the company should be looked into to ensure the sustainability of the company from the long term relationship point of view. There are instances where the product is good but implementation partner is weak and the vice versa. In both case, chances of failure are very high. Cost of implementation over a period of time has gone up considerably. It is as much and in some cases even more than the cost of product. Therefore, evaluation of implementation partner is as important as the evaluation of vendor. Implementation cost varies depending on timeline estimated in going live which again is dependent on scope defined. Implementation partners submit proposal based on the scope of implementation and man efforts required in completing major milestones as defined. Scope definition is the responsibility of the client and not of implementation partner. If the scope is not correctly defined, the project may be thrown out of gear during implementation resulting in cost escalation and ultimately failure. Even if the scope is defined correctly, the time estimate in completing major milestones of implementation phase may not match with actual time taken. Implementation is not the sole responsibility of implementation partner but joint responsibility along with client. Before project kick starts, implementation partner submits a detailed activity chart to the client highlighting activities under each milestones and responsibility of the individuals to carry out the activity. It is assumed that the person responsible for completing activity dedicates full time and energy in carrying out the activity. If for any reason, the person responsible for doing an activity fails to complete it in time, it may have repercussion on other activities which are dependent on this. Generally, the delay is from client end. Either the person concerned is not dedicated to this task due to his preoccupation with current functional responsibilities or he is lacking commitment . My observation is that this problem is more acute in small and medium sized organization wherein there is acute shortage of manpower. They are in a dilemma. If the person is kept aside to do ERP activities, the business of the company suffers.. Conversely, if they do not spend adequate time in ERP activity, implementation of ERP suffers. The decision to go ahead with ERP should be taken by the CEO of client company after carefully assessing the availability of man power which can be dedicated fully to ERP during implementation stage. Scope of implementation generally excludes certain activities like data clean up, data migration, coding etc. which if ignored can impact and delay implementation substantially. Existing database of the client may be inconsistent, incomplete, unreliable. Existing coding structure may be defective which may cause havoc to MRP., inventory etc at post go live stage.

Training is an area which is often overlooked. The standard practice is that training on various functionalites of ERP is given to core team members of client in the beginning phase of implementation with an understanding that this training will ultimately be passed on to endusers during go live stage. By the time pilot test run is conducted and the system is ready for go live, enduser training is forgotten by the core team with the result end users are left unattended. Core team members are withdrawn from the project and brought back to normal business functions. Implementation partner withdraws the support after project sign off. When faced with difficulties, endusers stop using ERP and reverts back to excel sheet in the absence of any support from either side.

Human resistance to ERP is prevalent in almost all organizations. Users who are fearful of losing control or are unable to embrace new technology resist implementation and block the process of implementation. CEO of the company has to anticipate such resistance and take appropriate steps to counter it. Many companies resort to methods like include ERP implementation as part of KRAs of users so as to increase the ownership of core team and end users.

Steering committee should make periodic review of progress made during and after go live stage. Post go live stage, old system should be switched off completely. Mistakes that most organizations make is they carry on with old system in parallel with ERP system with the result lot of backlog in transaction entry is created and ERP is never used in online mode.

The point to remember is that ERP implementation does not end with project sign off but extends much beyond and is in fact an ongoing process. Generally speaking, benefits from ERP in terms of reduction in cycle time, improved customer service etc is perceived only after 1 year of continuous use. Motivation level of endusers therefore has to be sustained over a period of 1 year after go live stage.

I will summarise by saying that ERP implementation requires dedicated skilled manpower on the part of the client and must be taken up with lot of commitment and dedication. If implemented in full and successfully, it can bring about radical change in the way the business is conducted or else it will become a status symbol only to satisfy the ego of company’s CEO.